Owens-Illinois, Inc. has reported financial results for the full year and fourth quarter ending 31 December 2012, with strong cash flow generation and improved earnings for the full year driven by margin recovery and restructuring benefits.
Owens-Illinois, Inc. has reported financial results for the full year and fourth quarter ending 31 December 2012.
Commenting on 2012 results, Chairman and Chief Executive Officer Al Stroucken said, “Our improved segment operating profit over 2011 reflects the success of our pricing strategy to recover margins, as well as significant improvements to the bottom line performance of our North American and Asia Pacific operations. To enhance our competitiveness in the challenging European market, we recently launched an asset optimization programme aimed at more effectively meeting customer requirements and improving profitability. Overall, we continued to strengthen our balance sheet by generating significantly higher free cash flow than in the prior year and further reducing our debt.”
Full year net sales were USD 7.0 billion in 2012, down from USD 7.4 billion in 2011, as unfavourable currency translation and a decline in volume were partially offset by higher prices.
The company achieved a more than 4% increase in price and product mix in 2012. Improved price outpaced cost inflation by USD 128 million for the year, and also allowed partial recovery of unrecovered inflation from 2011.
Volume declined 5% (tonnes shipped) compared with the prior year. This decline was driven by Europe, where shipments slowed due to persistently sluggish macroeconomic conditions, as well as a stronger than anticipated share shift to smaller competitors in response to O-I’s pricing strategy.
Segment operating profit increased by USD 35 million versus the prior year, buoyed by improved manufacturing performance in North America and restructuring benefits in Asia Pacific. The decline in segment operating profit in Europe was largely due to the impact of lower sales and production volume and foreign currency headwinds. On the whole, segment operating margin expanded 100 basis points, reaching 13.4% for the full year 2012.
Net interest expense in 2012 declined by USD 39 million (excluding Note 1 charges in 2011 related to debt refinancing activities) compared to the prior year, primarily due to debt reduction and lower interest rates from refinancing activities undertaken in 2011.
O-I reported full year 2012 earnings from continuing operations attributable to the company of USD 1.12 per share (diluted), compared with a loss of USD 3.06 per share in 2011. Excluding certain items management considers not representative of ongoing operations, adjusted earnings (non-GAAP) were USD 2.64 per share in 2012, compared with USD 2.43 per share in 2011.
In 2012, pension contributions were USD 219 million, up from USD 59 million in the prior year, as the company made significant discretionary contributions to reduce long-term pension liabilities and increase the company’s future financial flexibility.
Asbestos-related cash payments in 2012 amounted to USD 165 million, down USD 5 million from 2011. New lawsuits and claims filed in 2012 continued to decline compared to the prior year. The company conducted its annual comprehensive review of asbestos-related liabilities in the fourth quarter of 2012. As a result of that review, O-I recorded a charge of USD 155 million (before and after tax amount attributable to the company), as presented in Note 1.
The company’s cash flow focus continued to gain momentum in 2012. O-I generated USD 290 million in free cash flow (non-GAAP) for the full year 2012, compared with USD 220 million in 2011. The increase was due to growth in earnings and improvements in working capital management.
The company remained disciplined in its capital allocation, as evidenced by cash debt repayments of USD 321 million and the repurchase of USD 27 million of the company’s outstanding shares in 2012.
The company’s leverage ratio improved to 2.67 times EBITDA at year-end 2012, compared to 2.88 times EBITDA at the end of the prior year.
Net sales in the fourth quarter of 2012 were USD 1.75 billion, down from USD 1.82 billion in the prior year fourth quarter. Volume, in terms of tonnes shipped, decreased by 7% year-over-year. The decline in volume was most pronounced in Europe, due to lower end-use demand. South America continued to report strong growth in volume.
O-I reported fourth quarter 2012 segment operating profit of USD 164 million, down from USD 200 million in the prior year. Sales prices increased more than 5%, which outpaced the impact of cost inflation. However, this was more than offset by lower global shipments and higher manufacturing and delivery costs, primarily due to production curtailment in Europe.
Net interest expense was lower than the prior year, primarily due to debt reduction and lower interest rates from refinancing activities undertaken in 2011.
Excluding the impact of items listed in Note 1, the company’s tax provision from continuing operations was approximately USD 7 million in the fourth quarter of 2012, compared to USD 23 million in the prior year period.
O-I’s fourth quarter 2012 adjusted earnings were USD 0.40 per share, compared with USD 0.48 per share in the same period of 2011, due to lower segment operating profit.
In the fourth quarter of 2012, the company recorded several significant non-cash charges to reported results. Management considers these charges not representative of ongoing operations.
Commenting on the company’s outlook for full year 2013, Stroucken said, “We expect continued growth in emerging regions and stable market conditions in North America. Macroeconomic uncertainty continues to challenge visibility in Europe. In all, our global presence should enable us to achieve modest volume growth in 2013, and we see higher prices keeping pace with cost inflation. We are focused on our global cost reduction initiatives and our European asset optimization programme, which will drive continued growth in free cash flow and earnings. While deleveraging remains our number one priority for capital allocation, shareholders should expect continued modest share repurchases.”
O-I expects full-year 2013 free cash flow to be at least USD 300 million, and adjusted earnings to be in the range of USD 2.60 to USD 3.00 per share.
Owens-Illinois, Inc. is the world’s largest glass container manufacturer and preferred partner for many of the world’s leading food and beverage brands. With revenues of USD 7.0 billion in 2012, the company is headquartered in Perrysburg, Ohio, US, and employs approximately 22,500 people at 79 plants in 21 countries.